The Association’s Response
to the Green Paper
“Simplicity, security and choice Working
and Saving for Retirement”
Cm 5677 December 2002 (The Green Paper on
Pensions)
Occupational
Pension Scheme Funding Levels
Indexation
of Pensions and Survivors’ Benefits
Consultations
with Members and Scheme Organisations
Compulsory
Membership of Occupational Pension Schemes
The
Association’s Detailed Response
This
summary merely highlights some of the major problems as we see them. The Association’s detailed
recommendations and comment on the Green paper are set out separately. This summary is not intended to be read
as a substitute for consideration of our detailed response.
We do
not agree with the Government that this shift is not a matter for concern and
recommend the solution to be statutory backing for greater emphasis on the
proper funding of occupational pension schemes by employers – at least to
Discontinuance level. We also
draw attention to the very serious effect of the Chancellor’s withdrawal of tax
credits which is a contributory cause of the current
crisis.
It is a
fact that pensions arising from DC schemes are at present seriously
reduced. Contributors are
unable to plan retirement, even in the early stages of their careers, because no
guarantee of pension exists. This is a serious disincentive for people to save.
We recommend that some form of guarantee be introduced for DC schemes, if
necessary, underwritten by the employer.
We do
not support the suggestion that the earliest age for retirement should be
increased from 50 to 55 because we do not think that employers will change their
present attitude to making older staff redundant. The downturn in the present economic
cycle also supports this contention.
We do
not support any increase in the normal retirement age beyond 65. but feel that
workers should have an option to work longer if they wish to do so, if their employer
agrees or they can find employment and if they are sufficiently healthy. There
should be no compulsion to work longer.
We
submit that the MFR is an insufficient indicator of pension fund adequacy and
must be replaced by a requirement to adopt the Discontinuance measure as an
ongoing statutory requirement. We
are also concerned about funding at the time of any liquidation and recommend
that trustees should have greater power to ensure a continuing proper level of
funding in order to minimise this problem.
The
European Court has decided that pensions are deferred pay, which appears to make
pension funds the property of the members. The Government have previously
referred the subject of surpluses to the Law Commission with no result. We are disappointed that no legislation
is proposed to define the ownership of funds and surpluses once and for
all. Members and
pension schemes should have greater support in such matters from the Pensions
Ombudsman and additional protection from employers’ greater financial ability to
litigate. We strongly recommend that the disposal of surplus is a matter for
trustees but they must have equal status with employers in such matters –
possibly with an independent chairman.
We
strongly reject the Pickering suggestion for the abandonment of survivors’
benefits. We also recommend that the indexation of all pensions should be
reverted to a basis of wage increases in place of the present RPI. We are opposed to the capping of indexed
increases at specific levels without proper relationship to some form of
national index. We recommend the Government to consider these matters in their
deliberations in advance of the White Paper.
We
believe that member nominated trustees can play a very significant part in
preventing another Maxwell-type scandal and that they should have an equal
status with employers in the decision making process within occupational pension
schemes. We urgently
recommend that the numbers of elected trustees should be increased, that parity
of voting and numbers etc should be established in Trustee Boards and that the
Government should legislate to provide independent chairmen for such
Boards.
We
strongly support the suggestion that employers be required to consult with
trustees before making changes to pension scheme rules or other
arrangements. However,
“consultation” must mean what it says and any legislation must clearly oblige
them to both consult and take into account any representations made. We also recommend that relationships
should be established with any related Association representing members. Such Associations have often been
established because trustees have been unable to prevent adverse changes and to
finance litigation where employers have acted unreasonably. Often, as in our own case, Associations
independent of trustees have a truer picture of members’ wishes. The members’ voluntary financial support
for such organisations gives them credibility in negotiations with
employers.
We
believe that, if a serious fiscal problem is to be avoided in 10-20 years, as a
result of many more workers failing to make proper provision for their
retirement, the Government should take a much stronger line than the Green Paper
proposes. Some degree of compulsion
is required where an employer provides an end salary or DC industry/company
occupational pension scheme and is willing to make an adequate and substantial
contribution to such a scheme. Employees must be required to join in these
circumstances. Other workers will need to make their choice whether to join a
stakeholder scheme or to rely on the State scheme. In principle, we recommend that, if the
employer contributes, workers should be obliged to join.
We are
against the payment of member trustees. We believe that this will give rise to
the “professional” trustee who is only attracted by the money. We agree that adequate training must be
given and that all expenses should be met.
The
shift from DB to DC Schemes
Security
of Pension Rights - Actuarial Valuations
Indexation
and Survivors’ Benefits
Changes
in Employer or Type of Scheme
Consultations
with Employees/Members about Pensions Changes
The
Sandler Review – Regulated Products
Better
Investment in Occupational Pension Schemes
Occupational
Pension Scheme Rules
1
This Association represents some 207,000 members of the Electricity
Supply Pension scheme, together with a significant number of other employees who
are members of the various defined contribution schemes throughout the industry,
having joined since 1995, when most of the defined benefit schemes were closed
to new staff.
2
We were formed in 1995 in the wake of the privatisation if the
electricity supply industry basically to address the inequities amongst the
numerous individual company based schemes which were created by the Electricity
Act 1989. Our scope has widened since that time to encompass the defined
contribution schemes which most of the electricity employers have obliged newly
recruited staff to join. The poor performance of these schemes and the current
under funding of all ESPS schemes, including the defined benefit schemes is the
current concern of all our Directors and members.
3
When the Parliamentary Select Committee invited appropriate organisations
to submit evidence they asked “is there a pensions crisis?” Obviously there is.
Many occupational pension schemes have lost up to 30% of their value in the
recent stock market falls; insurance companies are slashing the values of their
life and annuity payouts by as much as 50%; UK plc has accumulated a pensions
deficit of £120bn by the start of 2003 and the equity market lost £29bn in 11 days trading at the end of
January. The recent modest recovery does not significantly alter the “crisis”
situation.
4
Standard Life, - the UK’s biggest pension insurer - announced in February
a further reduction of 15% in their bonuses, affecting some 2 million customers.
Norwich Union have issued figures indicating that 25 year £50 a month annuity
endowment has reduced in maturity value from £120,000 in 1997 to £70,000 in 2003
– a reduction of 42%.
5
These example statistics and many others prove that, not only do we have
a pensions crisis, but also a ticking time-bomb for the future The Green Paper
meekly suggests, in the summary (page 2) that the current problems are in four
main categories; namely:
people living longer, employers are making less
provision for their staff, older people are retiring too early, and financial
products are too complicated.
6
There is a fifth reason for concern and that is the Chancellor’s
withdrawal of tax credits from pension funds which has cost them £5bn a year
since 1997 and has not been compensated for in the adjustments to corporation
tax. Experts estimate that the Chancellor’s attacks on tax credits has cost
industry some £50bn since 1997; it has seriously depleted pension fund assets
and has created part of the crisis which the Green Paper attempts to
resolve.
7
Paragraph 11 of the Summary (repeated in para.8 of Chapter 1) says that
“whilst the shift from defined benefit to defined contribution pensions may not
in itself be a cause for concern, the level of employer contribution does
matter”. For members of DB schemes this is a matter of extreme concern and for
those who have either opted or been forced into DC schemes, the reduced benefits
of these schemes are likewise of concern. The solution to this crisis is money.
If a future, even more serious, crisis is to be avoided, more finance must be
found for the pensions industry generally. This can come from only three
sources, namely:
·
employers
·
employees;
or
·
the Government, through
taxation relief or other incentives
8
It is obvious that many employers are taking advantage of the present
crisis to reduce their exposure to pension scheme costs; some have closed
schemes to new members, some have liquidated schemes and many have either
transferred staff to DC schemes or ceased/ reduced their contributions to such
schemes. Some employers have, unfortunately become bankrupt, leaving unsecured
debts to their pension funds, thus forcing their closure. This Association’s
view is that the Government must look both to employers and to the tax system
for help in this crisis. The assertion in para.91 of chapter 4 that “The
Government will be guided by the aim of not increasing the overall burden on
employers providing pensions” is unacceptable. The quality of
schemes/contributions provided by employers varies widely, as mentioned in our
preceding paragraph. The unjust tax increase demanded when tax credits for
pension schemes were abolished must be restored as part of this
review.
9.
It is vital that the MFR be replaced as soon as possible with a more
realistic measure of pension fund adequacy. The Pensions Act 1995 is far too
lenient on employers who fail to meet their funding obligations . We favour the
“full buy-out” suggestion contained in para. 90 of chapter 4. which we describe
as “discontinuance level” Anything less than this will only perpetuate the
present unsatisfactory position, where employers can increase their pension
indebtedness up to the point where bankruptcy occurs and the pension fund is
left as an unsecured creditor in
the liquidation proceedings .
10. We
are unhappy with the suggestion funds in para.75 of chapter 4 that pension funds
might form a special new category of creditor in liquidation. It seems unlikely
that precedence will be given over the Inland revenue but vital that pension
fund debts at least be made preferential creditors in liquidation The Green
Paper suggestion for a lower category than this will not do. The argument that
trade creditors may lose out is credible but they have the option of whether or
not to supply, whereas pension funds do not enjoy this privilege and have no
option but to accept the present unsatisfactory MFR arrangement (Pensions Act
Sections 56/60) of 90% before the employer can be made to pay what it
owes.
11
We do not feel that the suggestion in Para. 78 of chapter 4 for the
creation of an insurance arrangement would be practicable. Many insurance
companies are currently having to sell
equities themselves in order to remain solvent. Their record in recent
times for risk taking is not good bearing in mind, for instance, the effect of
this year’s flooding on premiums and their reluctance to renew policies for
those affected. They seem unlikely to accept the heavy risk of pension fund
liquidations without heavy premiums, the burden of which may worsen rather than
improve the situation at times of investment decline. Para. 78 of chapter 4 also
mentions the possible creation of a “centralised clearing house” arrangement but
this is only the best of a bad job after insolvency has been allowed to occur.
What is needed perhaps is an industry-wide levy to make up any shortfalls This
is no substitute for trustees being required to ensure that employer debts do
not accumulate. The setting of the future “MFR” level at “Discontinuance” –
fully funded - level would largely overcome the need for such an arrangement or
levy.
12
The Green Paper is greatly weighted towards the so called “poorer
pensioners” who are frequently mentioned. These are largely first and second
tier national pensioners. However, it is a fact that the solution for these
people (and perhaps for occupational pensioners also) has been in the hands of
the Government ever since the abandonment of the link between wages and pensions
in the 1970s. In para.51, it states “the Government’s strategy is to focus
resources on those pensioners who need them most”. Whilst this may be a laudable
electoral stance, it totally ignores those large numbers of citizens who have
put aside a slice of their income to provide for their retirement and who now
find themselves either in a DC scheme with a poor benefit or in a DB scheme with
the serious fear that the employer will either close the scheme or wind it up.
13
The longer term fiscal effects cannot be ignored either; if employees are
discouraged from saving as a direct result of these factors the national economy
will suffer in 10 – 20 years’ time when more will become dependent on state
benefits. The present Government thinking is too short
term.
14
Prolonged longevity is a factor but the Association still strongly
support retirement at 65 combined with compulsory contributions to occupational
pensions by those in suitable employments. We do not believe that employers will
be willing to employ people for longer. Currently, many are offering early
retirement at between 50 and 60 and the virtual abandonment of manufacturing
together with the current run-down in service occupations
makes this even more likely in the future. The 4%
increase in employment between 50 and 65 mentioned in the Paper is probably
attributable to the RPI increases being inadequate and is confined to the poorer
pensioners in our society who may have no other option. We do not believe that
the impact of health factors has received adequate consideration in suggesting
an older retirement age.
15
The table in sub-para.4 of chapter 6.1 showing contribution savings which
can be made by delaying retirement is somewhat misleading because it appears to
include both private and national pensions. The decline in pension provision is
an urgent matter which deserves greater action by the Government than is
currently proposed.
16
We welcome the Government’s aim to protect members’ rights, whilst
simplifying the
regulatory regime. However, the proposal to reduce
the number of Actuarial valuations from three to one in a three year period must
surely be qualified in times, as at present, of investment volatility. It is
essential for trustees to be able to seek revaluation at any time when they
believe the funds may be insufficient to meet liabilities and this must be done
quickly if appropriate action is to be taken
17
All the assets contained in any pension scheme are there for one purpose
only – to provide members with pensions. It follows that the funds must not be
owned or administered by the employer otherwise the Maxwell syndrome is certain
to return. We are disappointed that the Government is not proposing to decide,
once and for all, the ownership of funds/assets and the proper use of surpluses.
The integrity of assets is central to the proper management and administration
of all pension schemes and, if the Government is serious in its desire to
protect the rights of members, this must be addressed.
18
There have been several Court cases in recent years on this subject; the
most recent have involved British Airways and, in our own industry, Laws and
Mayes v National Power and National Grid, which reached the House of Lords.
Their decision was unsatisfactory as it
gave no firm ruling on Fund ownership.
19
Our view is that, whilst the Fund should be the independent property of
members and
administered by the trustees with equal division of
rights between employers and members; any surplus should only be distributed
with the approval of the trustees/after receiving advice from the Actuary and
then only in the proportions agreed by the trustees. The Government must
legislate in this area of pension management otherwise it is likely to remain a
lucrative source of lawyers’ incomes for many years to come and this will not
benefit pension scheme members or employers.
20
Most of the local and central government employers and some others have,
in the past, required their
staff to join their industry and Local Authority schemes as part of their
conditions of employment. Such requirements have therefore been part of the
remuneration package. These employers have also argued that staff should
recognise the value of generous pensions when seeking wage improvements. This is
surely why the European Court has decided that pensions are deferred pay, which is this Association’s strongly held
view and which we regard as one of our main recommendations to the
Government.
21
The Pickering Report suggested the abolition of these benefits and was
met with howls of disagreement from pension scheme members in general We hope
that these proposals will be totally ignored by the Government.
22
It is one of the cardinal principles of any life insurance or employment
pension scheme that provision is made for survivors, be they wives, partners or
children. Some employees are unfortunate enough to die in service before
retirement and, unless these benefits continue, this may become a further
disincentive for employees to join schemes in future.
23
In the Electricity Supply Pension Scheme, for example, some 10-15% of
benefit currently payable goes to dependants who represent a similar proportion
of the membership. This demonstrates the importance of these benefits to
members.
24
The suggestion for limiting indexation to those receiving less than
£30,000 per annum or less would again be a disincentive for higher earners to
join company-based BD schemes
It is presumed that the restriction could not be
applied to DC schemes otherwise many more higher earners will simply transfer
their savings to offshore investment companies.
25
Indexation per se is not as important as its relationship to costs and
wages. The year 2000 fiasco of RPI increases of 75p per week for many pensioners
proved the basic electoral
unpopularity and unreality of RPI indexation. In
general, pensioners expect their incomes to maintain at least the inception
value after retirement and this does not currently happen. Some insurance based pensions are
automatically increased by specific percentages each year, commonly 3%; company
schemes are governed by Section 51 of the Pensions Act 1995, which allows only
increases at RPI level with a maximum of 5% . It must be borne in mind that,
inflation is at present rising from its lowest level for many years but RPI
figures of 10.9%, 11.0%, 17.7% and 26.1% were reached in 1991, 1982, 1977 and
1975. Against this background the Government’ proposal to curb the indexation of
any pension appears unreasonable; it would be seen as a further attack on middle
earners and act as a serious disincentive to saving in pension schemes,
26
This Association recommends that Indexation should continue, albeit on a
more realistic basis than at present. We believe and recommend that future
indexation should be allied to the increase in wages nationally and that
existing caps on maximum indexation within occupational pension schemes should
be removed and that, in future, the maxima for such increases should be related
to nationally increased wages.
27
Sections 16 and 17 of the Pensions Act 1995 set out the minimum
requirements for member trustees of which there must be two if there are more
than 100 members and also at least 1/3rd of the total number of
trustees. Any increase above this number requires employer’s
approval.
28 The
Act is silent on how the member trustees should be selected/elected and this has
led to abuse by some employers who have been able to appoint people of their own
choice. Employers were originally required to review the whole question of
member trustees after four years but the Government has now extended this for a
further four years.
29
In spite of Government efforts in recent years to overcome the
possibility of another Maxwell fraud, the present legislation continues to allow
the employer to overrule and ignore any objections which member trustees may
have to the running of their schemes with the exception of known dishonesty and
where an adviser can be persuaded to “blow the whistle” under Section
48.
30
Para 61 implies that the envisaged relaxation in selection processes for
member trustees may increase the employer’s powers over the administration of
their schemes and over scheme funds.
This would be a retrograde step and likely to return pension schemes to
the pre-Maxwell era. What is now
needed is a requirement for equality between employer and employee trustees,
complete independence for scheme funds and independent chairmanship of trustee
Boards.
31
We recommend that member trustees should be elected from constituencies
decided by the elected trustees acting together, and that as far as possible,
their constituencies should reflect the division of scheme members between
actives and pensioners. This would, of course, mean that a closed, very mature,
scheme with pensioner members only would elect only pensioner trustees. The
object of this recommendation is to prevent employers from facilitating the
appointment of their own nominees.
32
It is not clear whether this official will supersede the Pensions
Ombudsman. However, it is important to note that the existing Ombudsman’s powers
have been severely limited by the Courts, in that his decisions have frequently
been challenged by employers and overturned in subsequent expensive litigation,
which most employers are better placed to afford than are individual scheme
members. The Ombudsman’s role as “poor man’s lawyer” in pensions matters was
recognised in the legislation for his appointment and will, we hope, be
continued in any new legislation; however, individuals find great difficulty in
pursuing cases into the judicial system because of the costs involved. The
Ombudsman at present has no budget or authority to defend his decisions in the
Courts and his office is seriously undermined as a result of this
deficiency.
33
We hope that this deficiency can be addressed in future legislation. We
recommend that, where, in future, the Ombudsman/Regulator’s decision in any
matter having relevance to the majority of members in any scheme, is appealed by
an employer, litigation by any member to contest the appeal should automatically
be financed by the pension scheme involved.
34
Whilst the dilemma highlighted in this section is real and there is a
need to look at those members with long service/contribution history who just
miss out under the present procedures, we are less sure about placing caps on
pensions except in the most flagrant cases of apparent abuse. We do not favour
the redressing of the balance between the less and better off. This smacks of
private wealth redistribution.
35
It might be fairer to apportion the assets on the basis of a member’s
length of contributing service.
However, these remedies are “shutting the door after the horse has
bolted” and the real solution (see para.9 of this response) is to ensure that
employers do not under fund their schemes in the run-up to insolvency. There
will always be a small pensions debt in such cases but proper legislation,
giving member trustees greater power to require payment of the employer’s due
debts at an earlier stage than at present would minimise this. We feel that the
Government is being too soft on employers here.
36
We welcome the Government’s commitment to the protection of TUPE
transfers on a “broadly comparable basis” for public sector transfers. Transfers
of businesses between employers often disadvantage workers and, where the
existing employer has been contributing to and employee’s pension, it seems
essential that the new employer – as part of the transfer/acquisition
arrangements – should do the same, whether in the public or the private sector.
How else is the Government going to meet its pledge to encourage workers to save
for the future?
37
Obviously, employees must contribute to their pension scheme as a
pre-requisite to the employer/new employer making a contribution. On balance, we
favour the option of requiring the new employer to contribute on a “broadly
comparable basis”.
38
The requirement that employers be obliged to consult with employees and
trustees before making changes to pension arrangements is welcome but overdue.
However, this must not become some kind of “whitewashing” arrangement, allowing
employers to consult and then to totally ignore any or all representations made
by members, trustees or pensioner Associations whilst protesting that they have
consulted. This would be a fiasco of Maxwellian proportions. (Please see also
comments under Member Nominated Trustees in para.26).
39
As an industry Association representing both active and pensioner members
of the Electricity Supply Pension Scheme and members who have been obliged by
our employers to enter DC schemes outside the ESPS, we have considerable
experience of the history , changes since privatisation and of members’
opinions/preferences and, in many ways, we are able to fulfil functions which
trustees are unable to perform due to the joint employer/trustee nature of
trustee boards. Perhaps such an example is the current exercise, in which this
Association can comment without being inhibited by the employers’ views. We
recommend that all occupational pension scheme employers should be obliged to
consult with related member Associations, as was originally proposed by Paul
Myners when he suggested that the new “transparency” statements should be vetted
by such Associations (where they exist) before implementation.
40
The setting-up of an employer task force to tap into their experience and
innovation seems rather one-sided. Surely, trustees and pensioner/member
Associations would have equally meaningful contributions to make here. In the
electricity supply industry, the trades unions took no part in pensions
negotiation until well after privatisation; such matters were handled outside
their remit and this may have happened in other industries; the experience
therefore lies elsewhere with members and their trustees.
41
Most of the suggestions put forward in the remainder of Chapter 4 for
providing greater information about pension schemes are welcome. Unfortunately,
the Green Paper also mentions the possibility of reduced benefits: 100ths in
place of 60ths and 80ths, spreading the assets according to wealth, changes in
the basic calculation of pensions and the need to work longer and pay more.
There is also the Government’s declared aim not to compel employers to make
proper contributions. These issues will do little to encourage greater saving
for the future and may cause the further proposed Government campaigns to fall
on deaf ears. We feel that every employee should at least receive an annual
combined pension forecast and welcome the suggestion in para.110 for wider
consultation in respect of employee information packs.
42
Members of the electricity supply schemes have had considerable
experience of compulsory scheme membership; most were conditioned by the
employer to join the ESPS Scheme from day one of their employment. The benefits
of scheme membership cannot be overemphasised and, although younger employees
may have preferred at the time to have spent, rather than saved, their money,
all come to realise the benefits towards to end of their working
lives.
43
If an employer has a good pension scheme we think that compulsory
membership should be mandatory, subject, of course, to the employer making an
adequate contribution to the scheme at least along the lines suggested by Alan
Pickering. Tax concessions have always been allied to the proper management and
appropriateness of each particular scheme and, if this is what is meant by a
“401k “ scheme, then we agree. However, we do not consider that private
occupational pension schemes are appropriate fields for social engineering and
we would strongly oppose any such attempt.
44
On the subject of compulsory membership, this cannot be divorced from
employers being obliged to make contributions. We feel that any delay in
requiring all large employers to make adequate contributions to their schemes
will only allow the more unscrupulous amongst
them to lower their standards to a minimum on the
altar of saving money for their shareholders
45
On the question of employees wishing to opt out of compulsory schemes to
join stakeholder schemes, this would seem inappropriate unless the employer
provides access to such a scheme as an alternative. If the employer does not
provide an occupational scheme for its employees they will have a choice amongst
a stakeholder pension, a private insurance-based annuity or the state pension,
with the appropriate additional SERPS or other
contribution.
46
In the ESI, we have enjoyed successful DB schemes for many years;
financial advice has been obtained for our trustees and we have not, until
recently, been faced with the problem of second rate DC schemes. Obviously, any
simplification of information either by the FSA of the Government can bring
about will be welcomed by those unfortunates who are obliged to enter DC schemes
and, even more, by those who adopt the stakeholder or private savings
methods. However, the overall
importance of employer contributions cannot be ignored here The administration
cost of savings are small when compared with a regular employers’
contribution.
47
We note the comment in para.27 that “90% of employer designated schemes
have employer contributions; no mention is made of the size of such
contributions which is a very important factor. The aims set out in para.35 are
very laudable but it is likely that an employer will wish to provide access via
a restricted number of stakeholder providers and development of a “free market”
in information will therefore need to be universal if all workers are to
benefit.
48
In adopting the Sandler Review approach to stakeholder pensions, the
Government is in danger of producing a series of investments outside the normal
range which will inevitably be known as the “poor man’s pension”. As such, in
spite of efforts to reduce administration costs, such a scheme is likely to
attract less income because the package will have to be based on the more secure
types of investment and, for less mature members in early service, this would be
a disadvantage.
49
We are not sure that annuities are a financially efficient and secure
means of changing capital into pension, as alleged in paragraph 55. Recent
history has shown that many annuitants are receiving only half of what they
expected by way of pension; the same money invested in a DB scheme would have
guaranteed a pension at a specific rate However, for those who are in this
unfortunate position, it will pay to shop around for the best available package
and this should be encouraged. None of the options mentioned in this section
properly addresses the main problem, which is that individuals need to establish
the amount of their pension at an early stage of contributing so as to decide
how much to contribute.
50
There is a need to implement some form of guaranteed pension to be
provided by an annuity. There are
risks for the providers but these can be factored into the policies. This would,
of course, imply that a single provider was used throughout both for saving and
for the annuity pension.
51
Whilst it is necessary for trustees to be adequately trained in their
duties, we have considerable doubts about shareholder activism; this can be
skewed to include matters of political, environmental and social importance
which may have little or no relevance to
the objectives of a pension scheme , its members or
its Fund.
52
There is an important role here for the elected/member trustees to
perform; it is they who are in contact with members individually and, it is they
who, in the event of financial or other difficulty, will be replaced in a
democratic scheme. The Government must consider carefully whether the Myners
proposal to pay trustees will give rise to the “professional “ trustee who is
only there for the money. Such a move would be a serious and retrograde step
which would distance members even more from their schemes – which is just the
reverse of the Government’s declared aims. We do not favour the payment of
trustees (other than for expenses incurred) and we prefer the democratic
election of member trustees.
53 As we
have already said in paragraphs 13 and 14 above, we do not support the suggested
increase in the normal retirement age beyond 65 and we deplore the extension of
the earliest date for early retirement from 50 to 55. Section 6.5 makes some play of the need
for employers to promote work for older people but, in the present economic
conditions, it is more likely that a greater rather than lesser number of older
workers will be unemployed in future. We do not think the Government is being
realistic here.
54
We recommend that early retirement should continue to be available from
the age of 50 and that employees should be free to work until 75 if they are
able and wish to do so in order to build up their pensions. This should remain a
matter for negotiation between individuals and their employers. The move to improve the option to remain
at work with the same employer is welcome subject to our comments in
para.59.
55
It appears from this section of the Paper that age discrimination in the
context of the European Directive equates to a compulsory retirement age. There
is no reason now why employers cannot employ people over the age of 65 and we
cannot see how any Government can compel them to take on such people unless a
quota system is introduced similar to that under the Disabled Employment Act,
where they should have 6%. Even this is not adhered to in many
cases.
56
With the Government’s declared “voluntarist” approach to these matters
and their wish “not to increase the State pension age (Para. 51 –Summary) and
not to increase the overall burden of employers providing pensions (para.91
chapter4), the only avenue open to improving the numbers of older people
employed is taxation and improved allowances/training as with the New Deal, 50
plus and the Working tax Credits It might be useful to research just how many of
these recipients do extend their working lives beyond 60/65. As we see it, the
only Government “pension” saving here is if people work beyond 65 and if
occupational pensioners are allowed to take pension at 55 whilst continuing to
work and delaying their national pensions beyond 65.
57
The suggestion of a lump sum payment as an alternative to an increases
regular State pension (para.41 Chapter 6), raises other issues; if the lump sum
is taken and spent, the pensioner receives no lasting benefit and the “carrot”
of increased pension in older age disappears. In the illustration in para.41 the
pensioner may even opt for a lower than normal pension - raising the danger of
further dependence on State benefits as the cost of living rises.
58
Whilst we agree that Actuarially computed assessment in each case where
an employee works beyond retirement age would be equitable, it is essential to
ensure that individual pension schemes are not made worse off by such
arrangements. The suggestion that the pension of “step down” part time workers
be calculated on an equivalent full-time salary but with the accrual rate
adjusted to the best year’s salary of the last years of employment might reduce
the pension overall. A further option should be considered – that of keeping
contributions at the higher/existing level and receiving full
pension.
59
It should be borne in mind that figures produced in February 2003 show
that there are still 9 million current members of end salary (DB) schemes
equally divided between public and private sectors and that these and other
proposals in the Green Paper will overall affect 25% of the electorate
(including associated families etc.).
60
In all ESPS occupational pension schemes women are treated equally with
men and have the same opportunities to accrue pensions and lump sums in
retirement. We would quarrel with the figures quoted in para.1 of Section 7.1,
since all ESI pensions have been indexed to RPI during this period and wages
have significantly increased above RPI figures in recent
years.
61
The example given in para.4 of this section clearly illustrates that,
given the choice, female workers have often taken the option of opting out of
state contributions. This has implications for the current Green Paper.
62
Whilst the partnership and voluntarist policies outlined in the Paper
contain some advantages, neither is sufficiently robust to tackle the current
pensions crisis. What is needed is Government courage to legislate decisively –
not to evade the problem in the hope that it will go away; it will not and this
may become a future electoral liability. Taking the Green Paper as a whole, we
feel that any subsequent legislation will be too late to overcome the existing
and future pensions crises; the proposals are insufficient and harder, firmer
and quicker measures are needed. The additional burdens placed on occupational
pensions schemes by some of the projected changes will only increase their
difficulties, not resolve them.